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jgordosea, Enrolled Agent

Category: Tax

Satisfied Customers: 3159

Experience: I've prepared all types of taxes since 1987.

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I converted a significant portion of my Traditional IRA to

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I converted a significant portion of my Traditional IRA to several Roth IRAs at the beginning of 2010. I plan to pay the conversion taxes over two years (2011 and 2012). I do not expect an “estimated tax penalty” for 2010 since my tax payments exceeds 110% of my 2009 taxes. I am considering two options for paying the 2011 taxes: (1) I can pay the estimated taxes for 2011, or (2) I can keep the money invested and pay the taxes, interest, and penalty in 2012. The decision depends on the estimated range of interest and penalties that may be imposed and estimates of the stock market performance in 2011. Do you have any idea of the range of interest and penalties that may be imposed? Lem

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Since the federal short term rate is not likely to increase in 2011 much, if any, the underpayment rate will likely stay at 3% for most or all of 2011.